2020 (1) TMI 665 - HC - VAT and Sales Tax

Court overturns tax increase on unbranded furniture, stresses independent assessment in tax classification.

M/s. T.I. Industries Versus The Assistant Commissioner (CT), The Principal Secretary, Commissioner of Commercial Taxes

The court set aside the impugned order that increased the tax rate on unbranded furniture from 4% to 12.5%, based on a departmental clarification. The ... Exemption to Unbranded Furniture sold by the petitioner - whether taxable at 12.5% under item 69 (C,C No.3) Part C of the 1st Schedule Tamil Nadu VAT Act, 2006? - HELD THAT:- The law on the subject is well settled. In the matters of classification, it is the commercial parlance test which is relevant. It is test which has and that has to be adopted by the assessing officer. He has to decide as to how the product is treated in the market by the men of commerce in the trade. It is not the clarification or a particular view of the superior officer which should weigh his mind though such clarifications in the matters of classifications may be a relevant factor. However, they are not the only factors which are relevant. The impugned order is set aside and the case is remitted back to the 1st respondent to pass an independent order uninfluenced by either of the clarifications of the Department - Petition allowed by way of remand. Issues:1. Discrepancy in tax rate for unbranded furniture2. Validity of impugned order based on departmental clarification3. Assessment of goods classification for tax purposesAnalysis:1. The petitioner, engaged in trading unbranded furniture, faced a tax assessment issue for the assessment year 2007-08. Initially, the petitioner's claim was accepted, subjecting unbranded steel furniture to a 4% tax rate as per a specific notification.2. Subsequently, the petitioner received a notice to justify why the tax rate for unbranded furniture should not be increased to 12.5%. The impugned order confirmed this higher tax rate based on a clarification issued by the department, specifying different tax rates for furniture made solely of steel and those incorporating other materials.3. The petitioner contested the order, arguing that a prior clarification by the Commissioner of Commercial Taxes supported the 4% tax rate for unbranded furniture predominantly made of steel. The respondent, however, defended the impugned order, highlighting the petitioner's purchase of various materials besides steel for furniture manufacturing.4. Upon hearing both parties, the court emphasized that the assessing officer should independently determine the classification of goods for taxation, not solely relying on departmental clarifications. The commercial parlance test, reflecting how products are perceived in the market, should guide such assessments.5. Consequently, the court set aside the impugned order and directed the respondent to reevaluate the case, issuing a new order within three months. The petitioner was granted the opportunity to present additional representations during the reassessment process, ensuring fair consideration before the final decision.This judgment underscores the importance of independent assessment in tax classification matters, emphasizing the need to consider market perception alongside departmental clarifications. The court's decision to remit the case for a fresh evaluation aims to ensure a fair and unbiased determination of the tax rate applicable to the petitioner's unbranded furniture sales.